Exclusive: How Hutchin Hill Took Down JPMorgan

Hutchin Hill Capital is a hedge fund, founded in 2008, by Neil A. Chriss. The fund uses a quantitative (known as quant) approach to investing. Chriss is a former analyst at Steve Cohen’s SAC Capital. Additionally, Chriss was a portfolio manager at Goldman Sachs Group, Inc. (NYSE:GS) Asset Management (GSAM).

In 1997, Risk Magazine named Chriss one of the “Top Ten to Watch in the next Ten Years.” The magazine was off by five years.

Hutchin Hill is a fairly large hedge fund with over $1.6 billion under management. However, dozens of hedge funds manage similar amounts of money, or more. What makes the fund interesting is how they nearly took down the largest bank in the country, JPMorgan Chase & Co. (NYSE:JPM).

Some details have already been described in articles on this site, and some excellent writing on the topic from Shannon D. Harrington, Mary Childs and Stephanie Ruhle of Bloomberg. . Two other hedge funds which profited off JPMorgan Chase & Co. (NYSE:JPM) are Boaz Weinstein’s Saba Capital and BlueMountain Capital.

We have obtained specific details on Hutchin Hill’s strategy. Hutchin Hill describes how they entered the trade against JPMorgan Chase & Co., according to sources with direct knowledge of the matter

Early this year, the fund found a mispricing in the CDS NA.IG.9. The security is a credit default swap on a basket of over 120 US. investment grades bonds. The screeners showed that the security was trading at a large discount to its intrinsic value. Additionally, the CDS offered tail risk protection and an opportunity to generate additional alpha.

At first the trade was losing money. However, Hutchin Hill continued adding to its position, in the belief that it would eventually be profitable. The firm noticed that the index was making large moves, which seemed unusual. The moves were caused by JPMorgan Chase & Co. (NYSE:JPM)’s ‘London Whale’. This further aroused the curosity of the hedge fund.

Finally in May, JPMorgan Chase & Co. (NYSE:JPM) announced that they had lost $2 billion in the index, taking the opposite side of the trade. The firm made money after the index soared on the announcement and exited the position. Total profits on the gain were not provided by our sources.

Currently, no one is sure exactly how much money JMorgan lost off of CDS NA.IG.9. We earlier mentioned, that Hutchin Hill has better insight into JPMorgan’s total losses than almost anyone else.

According to our sources, Hutchin Hill believes that the market might not be discounting enough the JPM news and creating new value opportunities in shorts. It seems from the information from Hutchin Hill, that the JPM losses might be higher than most anticipate.